At the start of the year, Ipsos published the results of an opinion poll that found 38% of those surveyed believed the world’s major stock markets would crash in 2026. Marginally more (39%) thought this was unlikely.
So far, the optimists have been proven right. Although the war in the Middle East and the continued blockade of the Strait of Hormuz has seen most of the world’s major indexes fall back from recent highs, the majority have been largely unaffected (Japan being a notable exception) when compared to their values at the start of the year.
| Index | Country | Change 1.1.26–1.6.26 (%) |
|---|---|---|
| CAC 40 | France | -1 |
| Hang Seng | Hong Kong | -2 |
| ASX 200 | Australia | – |
| DAX 40 | Germany | +2 |
| FTSE 100 | UK | +4 |
| S&P 500 | US | +11 |
| Nikkei 225 | Japan | +25 |
An uncomfortable truth
According to MUFG, there have been 27 US stock market crashes – defined as a fall of 20% from a recent high — since the Depression of the 1920s. This suggests there’s roughly a one-in-four chance that the US market will tank in any given year. And with the last one occurring in 2022, there could be another round the corner. As the saying goes, when America sneezes the rest of the world catches a cold.
So what can we do about this?
If truth be told, not a huge amount. However, there are a few lessons from history that are worth bearing in mind. These include:
- The market should recover – at least, it always has done in the past. Although, with an average drop from peak to trough of 27%, it could take some time.
- A crash could be an opportunity to pick up some bargains. Holding more cash than usual could be a sensible strategy.
- To paraphrase Warren Buffett, it sometimes pays to be greedy when others are fearful.
The biggest of them all
With an eye-watering market cap of $5.39trn, one company that’s sometimes used as evidence of a stock market that’s overheating is Nvidia (NASDAQ:NVDA). However, in my opinion, this is wrong.
Just look at the earnings per share forecasts for its next four financial years:
- FY26 – $4.69
- FY27 – $8.02
- FY28 – $10.51
- FY29 – $14.26
Depending how far you look ahead, these imply forward price-to-earnings ratios of 47.5–15.6. That’s incredibly cheap for an exceptional company that dominates its sector. I believe there are plenty of AI stocks that are over-valued but Nivida’s not one of them.
Of course, the problem with the behemoth is that it has nowhere to hide. A small earnings miss could have a big impact on its stock price. And it’s possible that someone could come along and develop a rival chip. However, for the time being, the group continues to grow exponentially.
Remarkably, of the 71 brokers covering the stock, only one is advising its clients to sell. Analysts have an average 12-month price target that’s 33% higher than its current (3 June) price.
Due to its critical importance to AI, impressive margin, and superior product performance, I think Nvidia’s a stock worth considering. Indeed, I have exposure through a shareholding in Scottish Mortgage Investment Trust.
Final thought
History tells us that only the best companies – like Nvidia — are likely to come through a stock market crash relatively unscathed. That’s why sticking to the tried-and-tested method of holding positions in quality companies for the long term is, in my opinion, likely to deliver significant wealth over a lifetime of investing.
Should you invest £5,000 in Nvidia right now?
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James Beard owns shares in Scottish Mortgage Investment Trust plc.
